Nordic Waterproofing: Strong beat despite very tough comps - ABG

Q2 results beat extremely challenging comps
Nordic Waterproofing (NWG) continues to beat expectations, with yet another exceptional quarter despite extremely challenging comps. Sales came in at SEK 1,067m, up 12% y-o-y (organic +8%, FX -3%, M&A +7%) and 12% better than ABGSCe. As per usual, Products & Solutions was the main driver of the positive deviation (11% better on sales vs. ABGSCe). The segment grew organically by 12% on strength in Bitumen-based products combined with high double-digit growth in prefab elements. Profitability was impressive, with group EBIT at SEK 160m (17% above ABGSCe at 139m) while Products & Solutions delivered a margin of 19.1% (16.6%) for EBIT 33% above ABGSCe. We expect that the margin for bitumen-based products improved slightly y-o-y, but that prefab elements drove the majority of the margin improvement. On the other hand, Installation Services was sluggish (-56% vs. ABGSCe on EBIT), as the Finnish market continues to be weak.

Not assuming market and margin contraction in ‘21e
We raise EBIT by 11-4% for ’21-23e as we now assume less margin compression and higher organic growth in ‘21. NWG has offset pricing increases from its suppliers, and both oil and lumber prices have fallen, making further raw material input cost hikes unlikely in the near term. NWG is not experiencing raw material shortages, but we note that the construction industry as whole may see shortages. We have assumed a sequential sales downtick of 2% into Q3, which does not account for any significant impact from construction shortages industry. We expect a FY’21e EBIT margin of 10.9%, falling to 10.2% in ‘22e, as we expect the market to slow.

Compounder without a compounder’s valuation
NWG has delivered 19% EBITA CAGR ’12-’20, with 100% avg. FCF conversion and 15% avg. ROCE from operations relatively insulated from cyclical fluctuations. NWG is trading at 12x ’22e EV/EBITA, and we believe that it sustainably can deliver >10% EBITA growth with M&A. It has a cash-generative base in its bitumen-products, which supports value-accretive M&A in sustainable construction solutions.

https://www.introduce.se/foretag/nordic-waterproofing/Equity-research/2021/7/nordic-waterproofing---strong-beat-despite-very-tough-comps/